The Global Financial Crisis according to Christine Richard

Global Financial Crisis Survey

Christine Richard is a financial reporter that has won numerous awards for her Bloomberg News reporting. She is the author of Confidence Game: How Hedge Fund Manager Bill Ackman Called Wall Street's Bluff.

2. Which narrative presented by Douglas Elliott and Martin Baily of the Brookings Institute in Telling the Narrative of the Financial Crisis: Not Just a Housing Bubble best represents the causes of the Financial Crisis?

Everyone was at fault: Wall Street, the government, and our wider society.

3. The Global Financial Crisis effectively ended in the year

2009 - At some point we got a repreive and confidence returned to the stock/credit markets. So I would say the "crisis" which began with the collapse of the subprime market ended at some point in 2009, but the underlying problems didn't.

4. What were the primary causes of the Global Financial Crisis?

The financial crisis was caused by the US economy becoming too reliant on credit and debt. For more than two decades we have ceded our manufacturing base to foreign countries - most notably China. This process involved a very seductive trade off. Our manufacturing/engineering/blue collar worker economy was exchanged for an unlimited demand to buy US dollar denominated securities by the rest of the world. Dollars piled up overseas as we bought more and more products from other countries and those dollars were handed back to people on Wall Street to invest in whatever they could create. Since there was no longer demand to finance factories, Wall Street created securities that financed consumption. The most efficient way to do that was through the housing market. There was no discipline in terms of what was created (toxic super senior CDOs) because there was demand to buy ANYTHING.

5. What still should change as a result of the crisis?

We need to acknowledge that several decades of trade policy has been a failure. Of course, if you say this people will scream about how limiting trade will bring on the Great Depression. But what about the risks of ceding our financial strength to countries with which we have serious ethical and political differences? Or the risk of trading our manufacturing base for an outsized Wall Street? The resentment of Wall Street reflects this dynamic. It's too easy to make money on Wall Street and too hard to compete in other parts of the economy. We need to figure out a way to draw the smartest people in our society away from Wall Street and into other areas of our economy. This is easier said than done and I wish I had the answer for how to set this change in motion.

Compiled by Gary Karz, CFA
Host of InvestorHome

Global Financial Crisis Survey

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